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Labor Market Flexibility and Economic Performance in the European Union: A Dynamic Panel Analysis

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  • Dan-Mihai Dima

Abstract

This study examines how labor market flexibility influences real GDP per capita levels and youth unemployment across 27 EU countries from 2000 to 2022. Using a dynamic panel GMM approach (Roodman's two-step system), the results challenge conventional assumptions by showing no significant positive link between aggregate flexibility and long-term economic performance. However, a positive effect is observed in the short term, such as lower unemployment. Decomposition of the flexibility index into seven sub-components reveals that factors such as centralized collective bargaining and firing costs largely explain these unexpected outcomes. The findings indicate that the success of the “flexicurity” model depends on specific regulatory dimensions rather than on overall labor-market deregulation.

Suggested Citation

  • Dan-Mihai Dima, 2025. "Labor Market Flexibility and Economic Performance in the European Union: A Dynamic Panel Analysis," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 17(2), pages 139-149, December.
    • Handle: RePEc:rfb:journl:v:17:y:2025:i:2:p:139-149
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